news brief 8th September 2014
Market watch
By Chris Walkland, who also does market analysis for the Provision Trade Federation and British Dairying.
First the bad news, then a modicum of good – but don’t get too over-excited. The bad news relates to the Global Dairy Trade auction this week, which was down by another 6%. SMP sold for the equivalent of £1580. UK origin sold for £1662. To put this in context the last time the price was as low as this was in July 2012 (the month when SOS Dairy started), when the DEFRA milk price1 was 26.4ppl and due to drop to 24.4p. The EU’s (ludicrously) low intervention price for SMP, by the way, is £1350.
6% The butter price at the GDT auction was $2753 (£1672). EU butter, on average, usually commands a healthy premium over GDT butter, but needless to say the Dutch Dairy Board quotations for butter fell in line, and dropped €100 to €2950 (£2355). The slight bit of good news, though, is that the price of Dutch food and feed grade SMP didn’t fall this week and held at (the still dreadful) levels of €2050 and €1800 respectively. Everything else fell, mind! At these prices AMPE2, net of haulage, is now 21ppl.
Traders are bewildered as to what to do, and buyers are standing back from the market. The weekly Dairy Auctions on-line platform, for example, had 450 tonnes of product up for grabs this week, but not a single tonne sold. It is only the second time this has happened. Instead of buying ahead and doing deals on a quarterly basis traders are buying weekly. And not much at that compared to the thousands of tonnes swilling around the market, despite the low prices. One trader told me he couldn’t sell cheese at £2700 now. That’s 10% down on just a month ago. There is little interest in butter at £2450, because it is being offered by other EU states for £250 less. Traders also do not have much confidence in the Private Storage Aid measures announced by the EU. They may help in the short term, but what goes in store will come out. And as the rules stand at the moment that might happen in the run-up to the biggest flush the EU has seen, on account of it being the first quota-free year. We can all imagine what that will do.
page 2 - comment from chief executive Kate Allum
Explanatory notes
net AMPE
: 21ppl
1
DEFRA average milk price DEFRA runs a monthly survey in England and Wales to collect information on the volume and value of milk purchased from farms. Similar surveys are run in Scotland and Northern Ireland. The UK average farm-gate milk price is then calculated. AMPE – Actual Milk Price Equivalent The Actual Milk Price Equivalent is defined as the indicator of the factory gate value of a litre of milk used for butter and SMP. The formula assumes a standard processing yield and costs for making both products, but doesn’t include a profit margin or exfarmgate transport. So, approximately 2.5ppl needs to be deducted to take account of these factors in order to show a “net AMPE” value of milk at farm-gate. 2
Comment from chief executive Kate Allum During our Board meeting at the Lake District Creamery at the end of August, we deliberated long and hard about what to do on milk price. We could, of course, have kicked some of the challenges down the road to the Board meeting later this month. However, if we had chosen to delay bringing market returns and milk price into line, we would simply have been storing things up for the future. As a Board, we have decided that we will not set our milk price based on what competitors do, nor what commentators predict we will do - we need to run it according to market returns. Obviously, the current market picture, as Chris Walkland highlights in this newsletter, is not a pretty picture and we will continue to factor any further movement in market prices into our deliberations. As a farmer co-operative, we have an absolute
commitment to process every single drop of members’ milk. We have had an extra 100 million litres of volume to find a home for this year and much of this has gone into Westbury. At the same time, we are receiving calls on a daily basis from non-members desperately looking to find a home for their milk. Our position is that we will only take on new milk if it will ultimately benefit members. We are very clear that we are not here as a safety net for others. I appreciate that this is an extremely challenging time for you and your families. We have five farmers sitting round the Boardroom table, so we’re all acutely aware of the direct impact of the price cuts over the past few months. Within the business, we are putting more focus behind areas that are making the best margins and scaling back resource and spend in other areas. I will ensure that we keep you updated with analysis on market price indicators, and perhaps more importantly that we take whatever actions we can within the business to drive efficiencies and margin to mitigate some of the drop in market prices.